The Wall Street Journal reports that the Minnesota Supreme Court on Thursday, August 14, 2008, said a federal judge has little leeway to review or reject a stock-options backdating settlement between UnitedHealth Group Inc. and former Chief Executive William McGuire, increasing the likelihood that the deal will be approved. Vanessa Fuhrmans writes,

Dr. McGuire agreed in December to forfeit about $420 million of stock-option gains and retirement pay to settle shareholder and Securities and Exchange Commission complaints related to how stock-options were awarded by the Minnetonka, Minn., health-insurer.

But U.S. District Judge James Rosenbaum delayed finalizing the agreement when he asked the state's highest court to clarify how much power he had to review its merits.

In particular, he asked how much deference should be given to a special litigation committee appointed by UnitedHealth's board to review shareholder claims filed on the company's behalf.

In its reply to Judge Rosenbaum, the Supreme Court said that under state law, a court must defer to a special litigation committee's decision to settle such suits if it is clear that the panel's members are independent and impartial and that its "investigative procedures and methodologies were adequate, appropriate, and pursued in good faith."

Before signing off on the deal, Judge Rosenbaum still has the discretion to determine whether the committee meets those criteria.

The panel, however, comprises two former Minnesota Supreme Court justices whom the court noted were "individuals drawn from far outside the corporate ranks."

Though he chose to ask the state court for guidance, Judge Rosenbaum also may have room to maneuver under federal procedural law.

UnitedHealth cited the special litigation committee's "exhaustive" 15-month investigation into the company's past stock option practices as evidence that the panel had met the state supreme court's bar in probing the legal claims and determining that a settlement would be in the company's best interest.

"Now that the Minnesota Supreme Court has answered this important question, we look forward to the presentation of the settlement to Judge Rosenbaum and the resolution of this matter," the company said.

David Brodsky, an attorney representing Dr. McGuire, said, "We are pleased that the Supreme Court has issued its decision so that the District Court now can consider whether to approve the settlement Dr. McGuire reached in the derivative litigation last December."

Together with the $200 million that Dr. McGuire agreed to surrender when he was ousted in late 2006, the sum would be one of the biggest executive-pay givebacks in history.

UnitedHealth was one of the largest among the dozens of corporations to become ensnared in the backdating scandal, in which option-award dates were manipulated to give executives a chance to reap additional compensation.

Last month, UnitedHealth agreed to resolve another group of shareholder suits for more than $900 million, the biggest settlement of a backdating case to date.